The sectors didn't bring much cheer to investors and the S&P BSE Healthcare index that represents pharma and healthcare stocks underperformed compared to the benchmark Sensex.
The year 2018 was action packed for the pharmaceutical and healthcare sectors with high profile mergers and acquisitions, government policy changes and regulatory developments. Let's look at how the sector performed this year.
The sectors didn't bring much cheer to investors in 2018. The S&P BSE Healthcare index that represents pharma and healthcare stocks underperformed compared to the benchmark Sensex. While the S&P BSE Healthcare index fell by 8 percent to 13,649.48 points, the Sensex gained 4.58 percent to 35,620.21 points in 2018.
Ayushman Bharat or Pradhan Mantri Jan Arogya Yojana (PMJAY) was launched on September 23, 2018, by Prime Minister Narendra Modi and is considered the biggest healthcare intervention in post-independence India. The scheme aims to provide Rs 5 lakh cover to 10 crore poor families or nearly half a billion people and is politically significant for Modi as he heads for general elections in 2019.
The scheme covers medical and hospitalisation expenses for almost all secondary care and most tertiary care procedures. PMJAY has defined 1,350 medical packages covering surgery, medical and daycare treatment including medicines, diagnostics and transport. With exception of Telangana, Odisha and Delhi, rest of the states and union territories are on board to implement the scheme.
The Fortis saga with Singh brothers
The year 2018 can easily be called the year of Fortis Healthcare and Singh brothers in pharma. India's second largest healthcare provider plunged into crisis early this year with the company disclosing that the promoters took out Rs 500 crore from the company through questionable inter-corporate deposits.
Soon, both the promoters Malvinder and Shivinder -- also called as Singh brothers -- resigned, and their stake in the hospital chain pledged with lenders was invoked on account of non-payment of dues.
The Singh brothers' stake in the company has now fallen to 0.80 percent from 34.43 percent in February as lenders invoked the shares pledged by them.
Subsequently, Fortis was put for sale and after much drama Malaysia's IHH Healthcare managed to seal the deal after offering to invest $1.1 billion in the company through a combination of preferential allotment and open offer.
The deal still hangs in balance, as the Supreme Court has ordered a status-quo. Meanwhile, relations between Singh brothers hit rock bottom, even as they were hounded by courts to pay-up Rs 3,500 crore to Daiichi Sankyo, which the company won in an arbitration in Singapore against the brothers.
Sun Pharma roller coaster
Shareholders of Sun Pharma witnessed a roller coaster ride this year. Shares of India's largest drug-maker zoomed Rs 678.80 in the first week of September with the crucial Halol plant in Gujarat passing the USFDA test. The Halol facility was under USFDA warning since December 2015, due to which new approvals were blocked. With Halol being resolved and the specialty pipeline unfolding, nothing seemed to rock Sun Pharma's boat.
However, things changed dramatically for the company, in the last three months and shares have nosedived on account of a surprise net loss of Rs 219 crore in Q2, followed by reports of questionable corporate governance practices and a whistle blower compliant to SEBI. Given the weightage of Sun Pharma, the market value destruction at the company has pulled the healthcare index lower.
Lupin gets USFDA warning letter
In a year when most companies were coming out of regulatory trouble, Lupin got a shocker with USFDA issued warning letters on its Goa and Indore plants. The letter remained an overhang on the company as it came at a time when it was facing intense pricing pressure in the US.
It's been a year of M&As in the sectors.
Aurobindo Pharma was active with outbound acquisitions worth around $1 billion, it bought Sandoz's generic business in US for $900 million and further gobbled up generic and over the counter business of Apotex in five European countries for 74 million euros.
Zydus Cadila, part of Cadila Healthcare acquired Complan and Glucon-D brands from Heinz India for Rs 4,595 crore. This was followed by the merger of GSK Consumer Healthcare, merging itself with HUL in a deal valued at Rs 31,700 crore. The deal gives HUL ownership of Horlicks and Boost in India.
In the hospital space, two major acquisitions took place – IHH Healthcare acquired India's second largest healthcare firm Fortis for $1.1 billion and Radiant Life Care backed by KKR bought Max Healthcare, creating the third largest hospital chain with an equity valuation of Rs 7,242 crore.
Sector outlook for 2019
Nonetheless, green shoots started emerging in 2018, such as easing of regulatory and US pricing pressure, steady US approvals and recovery of domestic formulation business after the disruption caused by GST roll-out. In addition companies are tightening costs and focusing on complex and specialty products to beat competition. All these factors are expected to play out in 2019.
The hospital business has faced problems with the government capping prices of cardiac stents and knee implants, but they have recovered as the fundamentals of India's healthcare business remain intact with increasing burden of chronic diseases and penetration of health insurance. Consolidation in the sector also helps reduce costs and improve utilisation of resources.Lastly, although pharma and healthcare would be least impacted by the 2019 general elections, it will be closely watched to know how much importance the sectors would get in the agenda of political parties.